Aerospace industry is a giant pyramid scheme

Recently, federal Innovation Minister Navdeep Bains announced $10 million in funding for the Centre for Aerospace Technology and Training (CATT) located in Winnipeg. CATT describes itself as “a perfect example of a partnership between industry and research/education.”

While there’s nothing objectionable about governments funding a public good like education, it’s notable that the industry partner in question here is aerospace – an industry that seems to perpetually receive a disproportionate amount of politicians’ attention, not to mention taxpayer money.

Superficially, this isn’t surprising. Airplanes are impressive to just about everyone, from small children to politicians, and for obvious reasons. They’re big machines that fly. Even the word aerospace conjures up positive imagery of sophisticated technology and engineers in lab coats. For anyone who laments industries like “cutting down trees” or “extracting oil out of the ground” as boring relics of a bygone era, aerospace ticks all the exciting boxes that signal “economy of the future.”

Unfortunately for Canadians, that future never quite seems to arrive. Bombardier, Canada’s most prominent aerospace company, is the national poster child for corporate welfare, having received $4 billion since 1966.

Last year, after receiving $1.3 billion in aid from Quebec taxpayers, it proceeded to fire 2,000 Canadian workers. Not long after, the Trudeau government came along to give them a further $372 million in “repayable loans.” It is no exaggeration to say the company has essentially been kept on life support for decades by Canadian taxpayers. And if Bombardier sold brooms instead of airplanes, the market would have put it out of its misery decades ago.

Naturally, aerospace boosters are quick to insist there’s more to the story. Often this takes the form of what are usually referred to as “economic spinoff effects”. The pitch goes something like this: Bombardier builds planes. Those planes need parts. So Bombardier’s demand for parts sustains a whole bunch of suppliers as well.

This logic sounds great on paper but there’s just one small problem: it isn’t true. Far from Bombardier sustaining its own supply chain, Canadian taxpayers are forced to subsidize companies in the aerospace supply chain as well, through regional development funds, provincial funds, and the recently launched Strategic Innovation Fund.

In fact, the aerospace industry in Canada resembles a giant pyramid scheme, with taxpayers at the bottom of the pyramid. Based on the “aerospace is special” argument (often backed up with the sage “every other country does it” argument), Canadian taxpayers have the privilege of subsidizing an entire industry top to bottom. There are the aforementioned subsidies to Bombardier; subsidies for Bombardier-led consortiums to do research and development; subsidies to the buyers of Bombardier’s planes (in the form of cut rate loans through Export Development Canada) which are in many cases already priced below cost; and subsidies to Bombardier’s suppliers.

If this sounds like a crazy business strategy, it’s because it is. And if we were to replace the word “airplanes” with “candy canes”, no sane person would take the pseudo-economics of aerospace seriously. But because it is about airplanes, and airplanes are sophisticated machines, politicians, industry executives, union leaders and more than a few otherwise intelligent people buy into the whole absurd charade. And why not? It’s not their money at stake. It’s merely the broader taxpaying public, and those working in industries to which the normal laws of economics apply, who end up paying the price.

It’s far past time we accept the obvious: aerospace isn’t special, and its perpetual coddling by politicians soaks Canadian taxpayers and hurts Canadian businesses in other industries. If the aerospace industry cannot survive in this country without Canadian taxpayers propping it up forever in countless ways, it’s time to let it go.